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New Laws Effecting Multi Level Marketing

11-13-2006, 09:57 PM

The federal government wants multi-level marketing companies like Avon and Amway to let potential newcomers know how many sales representatives have failed to earn more than their start-up costs and how many customers have filed lawsuits for deceptive practices.

Do you think this is good or bad?

Have you ever been involved in a multi-level marketing business?

What was your thoughts on it?

New Laws Effecting Multi Level Marketing - In April, citing hundreds of fraud investigations, the F.T.C. proposed new rules for multilevel marketing companies and related businesses. They would require companies to tell potential recruits how many sales representatives have failed to earn more than their start-up costs and how many customers have filed lawsuits for deceptive practices.

The proposal, which may be modified and could take as long as two years before approval, also requires a weeklong waiting period between approaching new sales representatives and sealing the deal.

But like many multilevel marketing companies, Pre-Paid Legal suffers from high turnover. In 2005, the company replaced at least 50 percent of its active sales force, according to filings with the Securities and Exchange Commission. Industrywide, multilevel marketing companies typically replace almost all of their sales representatives every year.

Under the rules, Pre-Paid Legal would have to tell prospects that fewer than a quarter of its sales representatives sold more than one insurance plan in 2005, something it disclosed to investors in a filing with the S.E.C. While Pre-Paid’s Web site tells prospects that if they “market just five memberships per week, you’ll receive &#036;500 per week&#33;” very few representatives have consistently sold five memberships a week."